China turns lenient on local platform financing

LiXiaoxiao

BEIJING (Caixin Online) — A revised policy regarding platform loans shows the China Banking Regulatory Commission (CBRC) is taking a step back from its original plan and treating lending to local government financing platforms with greater leniency.

The revision was announced on April 9, about one month after the draft was released for feedback from local banks and financial regulators.

These adjustments reflect the central government’s concern that local governments not be cut off from financing sources all at once, said Li Yang, vice president of Chinese Academy of Social Sciences.

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Beijing has been trying since 2009 to keep a lid on local government debts, which have soared on the back of stimulus plans introduced earlier to combat the global financial crisis.

Because the Budget Law prohibits local governments from borrowing money directly, most of the debts were taken on via quasi-market financing platforms controlled by the governments.

The debt total is on track to reach 16.3 trillion yuan ($2.53 trillion) this year, equivalent to 29% of the country’s gross domestic product, research by Huatai Securities shows. Data from the banking regulator put the figure at 9.3 trillion yuan
USDCNY, +0.0488%
at the end of 2012.

The revision to the original plan states: “All banking financial institutions should not increase the scale of platform loans.”

This replaced the previous draft’s requirement that all banks needed to cap their stock of platform loans and the loans as a share of their total lending at last year’s levels.

The revision removed a statement saying: “Loans to financing platforms tied to county-level governments and those with high debt-to-asset ratios should be reduced.”

Also, the draft had said: “Loans to platforms with a debt-to-asset ratio of higher than 80% must not increase.”

But the revision says: “The share of loans to platforms with a cash flow coverage ratio of less than 100%, or a debt-to-asset ratio of higher than 80% must not increase from last year’s level, and they should be gradually reduced.”

Regarding operational details of how platforms should borrow from banks, the updated policy refers to a document jointly announced by four central government agencies, including the CBRC in December, saying that all relevant rules in that policy apply.

In the draft, however, those rules were spelled out with wording similar to the December document. A change like this usually means the authorities may have greater discretion when implementing the rules.

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